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Non-Tech : Hvide Marine HMAR - High Growth, Undervalued
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To: Don MacNeil who wrote (307)3/17/1998 9:42:00 AM
From: Grommit  Read Replies (1) of 547
 
I assume you all read the front page of the Wall Street Journal. It has the headline "Keep on Pumping - Crude Oil Price Falls, But Firms Still Profit And Sink New Welles"

Someone clipped part of the article and posted it.
Message 3735246

A lot of people are saying even if OPEC & Ven agree on production cuts that oil prices will remain low for most of 1998. OK - but how about longer term:

"One of the reasons for drops in crude is the short time frame in the futures market. Typically, the futures market focuses on contracts about a two to three months out, says Yu at Refco. Looking much further out, traders are valuing crude at more amenable prices, indicating the present softness may be short-lived. Crude oil for December 1999 delivery, for example, closed at $17.26 on Friday."

The WSJ article gives a specific example of a company drilling on land profitably at $12 a barrel. And getting positive cash flow all the way down to $7.90 a barrel. And isn't water supposed to be cheaper than land?

I think my outlook is changing. Perhaps the 'permanent' fundamentals of oil production and pricing are changing. And maybe it is not disasterous even if OPEC and Venezuela do not adjust.

We knew that the oil industry CEOs were right who said "ignore oil prices and look at reserves and oil volume - because that is what determines the activity and profitability of the oil service sector". We knew they were right at $15, but worried if oil fell below $15 they would be wrong.

Now maybe even at $12 they are right. When Mr. Hvide said that no matter how low it goes, the cheaper oil gets, the better for HMAR - I thought he was not serious down to $10, but maybe he was. Hmmmm.

I hope the WSJ article points out the 'new economics' of the sector and the mainstream writers begin to pick up on the notion. This is the key to our stock price recovery. Will they notice now or will they need a couple of qtrs of earnings as evidence?

PS - Even if the industry fundamentals change to $10-$12 oil, Scientific American makes a solid case for significantly higher prices in the longer term. They say OPEC goes to 30% share within 2 years - which is the percent at the oil shock of the 1970, and OPEC hits 50% in 2010.

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